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The sound of carpentersâ saws is flooding the halls of RAB Capital in central London as the recently listed UK hedge fund manager prepares to double in size this year.

Michael Alen-Buckley, executive chairman, hopes to employ 55 staff by December, compared with around 30 at the start of the year. RAB plans to operate 20 funds by the end of the year, compared with its present 12, to diversify its earnings stream.

Philip Richards, who founded RAB with Alen-Buckley in 1999 and is chief investment officer, brooks no argument about the type of fund manager he wants: “We don’t want prima donnas. I would almost rather have someone who is not the best but with a personality that we can work with.”

He describes his fund managers as hardworking. The UK fund team works from seven in the morning to six in the evening. Richards works from 7.30am to 8pm. As a result of his efforts, RAB’s special situations fund registered a gain of 1,274% last year by investing in a good mix of shares in the mining and biopharmaceuticals sectors.

The fund grew from a net asset value of under $15m (€12.5m) to $187m. Other RAB hedge funds operate in areas such as European long/short, which has $410m under management, and which is up more than 100% since inception in November 1999; and global macro, which has $140m, which is up 23% since inception in July 2000, although it was down 5% for the first two months of this year.

RAB seeks consistency more than flashes of brilliance. Alen-Buckley said: “Most of the fund managers are pretty defensive. None of them wants to be facing the music as a result of losing money.” A deferential glance in Richards’ direction indicated who hands out any grillings.
Alen-Buckley added: “Even if we have poor performance from a team, we will support it.”

RAB’s fund managers appear relaxed. One of them, unchaperoned by his bosses, described the firm’s atmosphere as highly convivial.

The investment specialists typically have more than 10 years’ experience. Richards allows them their head: “If managers of different funds have opposing views, they are allowed to follow them.

We don’t have a house view on, for example, the dollar-euro exchange rate. I don’t think you can run an asset management house by dictating to people. We want people who are used to thinking for themselves.”

The co-founders, who made a paper profit of £25m (€38m) each when RAB Capital floated last month, said it was critical to reward investment staff appropriately.

However, the firm aims to pay half its pre-tax profits in bonuses. This means fund managers are paid out of RAB’s revenues from management fees as well as performance fees. Alen-Buckley said this incentivised managers to keep risks at acceptable levels: “Clients want risk management as well as performance and they will move if we don’t give them what they want.”

Their ability to secure a stake in RAB is the final piece of the remuneration jigsaw, and one of the main reasons for the firm to list. The co-founders owned almost 90% at flotation but Alen-Buckley said: “We are keen to share the value around. Our stakes will be below 60% in the near future.”

He described the generation of wealth for founders and managers as a by-product: “We want to create an enduring business, a long-term framework where the firm has a life of its own.”

A crucial element of this framework, according to Alen-Buckley, would include fund managers with the strength of mind to formulate contentious views, the freedom to act on them and the confidence that the firm will support them if they go wrong.

A diversified operation that protects its shareholders by running a variety of funds is another plank of the long-term strategy. With this in mind, RAB is launching three funds this month.

The managers are recent hires. Arild Eide, who joined from Morgan Stanley in November, is managing a long/short US equities fund; Robin Cosgrove, who joined from Dresdner Kleinwort Benson in Tokyo in January, is running a long/short Japanese equities fund and Gavin Wilson, who joined last month from Canaccord Capital, a Canadian investment firm, is in charge of an energy fund.